Business insurance premiums drop; good news for everyone but insurers

MINNEAPOLIS (AP) - Business insurers are learning a hard math
lesson: Four hurricanes plus three years of rate increases do not
add up to more rate increases.

Insurance brokers are asking for premium cuts - and getting
them. In the second quarter of this year, 81 percent of commercial
property policies renewed for less, and 31 percent of commercial
auto policies dropped, according to the Insurance Information
Institute, a trade group.

Rate increases peaked in mid-2003, and now many insurers are
actually cutting rates to keep business. Premiums for commercial
property dropped 8.8 percent in the last quarter of 2003, and have
dropped slightly during the first two quarters of this year, too,
according to Advisen Ltd., which polls insurance purchasers.

"This is a good time to put your insurance out to bid," said
Dana Gold, a risk-management consultant in Atlantic Beach, N.Y.
"Unless all of your property is in Florida, or unless you have some
sort of horrendous claim experience … it's a pleasure for the
insured."

It's still possible that hurricane devastation - with damages
topping $20 billion - will boost rates again. But Robert Hartwig,
chief economist at III, said there are powerful opposing forces:
Competition, and insurance buyers weary of three years of rate
increases. Reinsurance and Florida's catastrophic insurance fund
will combine to limit hurricane losses, he said.

The hurricanes could cause "higher prices for homeowner's
insurance and reinsurance in the southeastern United States, but
this will have little effect on insurers' or reinsurers' ability to
underwrite property risks in, say, Kansas or Minnesota," Hartwig
said.

He said most homeowners and individual auto policies are seeing
low single-digit increases. But for commercial insurance, "It's a
very competitive business. A lot of capital has entered the
business post-9/11," Hartwig said. "As prices went up and results
improved, that attracted additional competition."

Not since 1978 have commercial insurers charged more than they
paid out in claims, Hartwig said. (Investment returns made up the
difference.) Sharp rate increases after the Sept. 11 attacks and
more discipline in who they cover raised hopes that this year would
change that trend. Now the hurricanes may have put that goal out of
reach, Hartwig said. Also, the higher rates have increased
competition - forcing rates lower again, he said.

He said St. Paul Travelers would rather lose customers than
lower premiums - within limits. Giving up premiums "is a very
expensive thing to do, and we will do so reluctantly, and we will
do so only as a follower, and only when there's no other course of
action," Fishman said.

Insurance buyers said it's about time rates come back down a
little.

"I think most insurance companies knee-jerked after 9/11, and I
think they're coming back down to Earth now," said Bob Dabler, the
risk manager for Ash Grove Cement Co. in Overland Park, Kan.

"It's a relief. After 9/11 when you saw 50 to 70 percent
increases, it was quite shocking. But now they're coming back down,
so barring any losses on our end … I'm hoping it'll level out," he
said.

Gold, the insurance consultant, said these cycles typically last
about eight years - and she tries to make the most of them in
negotiations with insurance brokers.

"I go and ask for everything I can get," she said, "because I
know when the hard market comes around, the carriers are going to
sock it to me."